Wolf, G., (2013), “Governments must follow the ECB’s rate cut with policy action”, Bruegel, 13 Νοεμβρίου.
The Eurozone is still at risk of falling into deflation. Euro area core inflation rates, i.e. inflation rates excluding volatile energy and food prices, have been falling since late 2011. Inflation expectations two years ahead are hardly above one percent and even at a 5 year outlook, market-determined inflation forecast is at 1.44%. So clearly, the euro area is currently confronted with an inflation rate well below the target. This has consequences: The reduction of the inflation rates in the last 2 years was unexpected. As is well known, lower-than-expected inflation re-distributes wealth from debtors to creditors, and increases the burden of the debtors. Thus, the disinflation of the euro area undermines private and public debt sustainability, in particular in the periphery where the debt overhang is largest. It is therefore a real risk for the euro area as a whole. Prior to the crisis, inflation rates in the periphery had been well above 2%, while the German inflation rate had been below 2%. With the end of the bubble-driven growth in the periphery, inflation rates had to fall in order to regain competitiveness relative to the euro area core. But in this process, the ECB failed to achieve its mandate, the stabilization of euro area inflation rates at close but below 2%, and instead accepted lower inflation rates. The German inflation rate did not move above the 2% threshold even though this would have been an arithmetic necessity of the lower inflation rates of the periphery.
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Σχετικές Αναρτήσεις
- Wolf, M., (2013), “Why Draghi was right to cut rates”, The Financial Times, 12 Νοεμβρίου.
- Münchau, W., (2013), “Optimism about an end to the euro crisis is wrong”, The Financial Times, 27 Οκτωβρίου.
- Münchau, W., (2013), “The eurozone needs to get inflation up again”, The Financial Times, 10 Νοεμβρίου.
- Cohen-Setton, J., (2013), “Blogs review: The deflationary bias of Germany’s current account”,Bruegel, 06 Νοεμβρίου.